Market conditions are slightly worse in the global reinsurance market compared to this time last year, according to Willis Re CEO John Cavanagh, however the worsening of market pricing and conditions has not materially changed in that time, providing hope that things are stabilising.It’s a tough reinsurance market right now, broker Willis Towers Watson’s CEO John Haley and the firm’s broking arm Willis Re’s leading executives confirmed today at the 2016 Monte Carlo Rendez-vous, but the value of reinsurance continues to be affirmed as new ways of financing risk emerge and alternative capital continues to play an increasing role.

Things are worse, but not that much worse than last year, seemed to be the message, at the first broker briefing this year, however while there have been some positive signs of stability there is no sign of any profitability returning to reinsurers and Willis Re forecasts a steady worsening of returns on equity (RoE).

Haley explained that there are a number of forces impacting the reinsurance market

“Despite this terrific location, I don’t think I have to tell any of you this is a tough market we’re in right now,” Haley told the assembled reporters this morning in Monte Carlo.

“There are a number of forces at play, I don’t think any one of them would be significant in isolation, but when they converge I think they do cause some difficulties,” he explained.

The influx of new players in reinsurance, changes to and new ways of doing the business of financing risk, changes to the way brokers trade and distribute their products, these are all forces impacting brokers roles and position in the reinsurance market.

However, while these cause difficulties they also produce “a lot of opportunities”, Haley continued.

Willis Re CEO John Cavanagh went on to explain that while reinsurance market conditions are “slightly worse” than a year earlier, it remains a “very, very good time to buy reinsurance” for the brokers client base.

Reinsurers themselves “will barely cover their cost-of-capital” in the next year or two, while market conditions remain as tough and competitive as they are, he explained, and Willis Re expects return on capital to drop to around 5.5% to 7.5% in 2016 and 2017.

That means an ongoing erosion of profits for the reinsurance sector, meaning a continued and accelerated focus on efficiency and reduction of the cost of capital will be key, as will leveraging alternative capital and ILS style structures, funds and third-party balance-sheets to achieve that, we believe.

“We’re very bullish about the reinsurance market, despite the fact we’re probably at an all-time low for some while, in rating,” Cavanagh said, adding that the “value of reinsurance is continuing to be affirmed.”

James Kent, President of Willis Re North America, said that one pressure on reinsurers, alternative capital, is not expected to lessen.

Kent said that he is seeing more interest in the capital markets, not less, despite the low reinsurance rate environment. He’s also seeing an increasing share of the reinsurance market being taken by ILS players and alternative capital.

And this growing ILS capital and alternative reinsurance capabilities is helping to make the industry more efficient and enhancing the product set on offer to clients. However it is also going to accelerate pressure on reinsurers at a time that their own cost-of-capital may be too high.

That suggests we will not see the end of tough market conditions and Willis Re’s message in 2017 may not have changed dramatically.